Enforcement, programs help stem flipping

Federal task force says more needs to be done

Report to be released Monday

2-year study examined property fraud in the city

September 27, 2002|By Ariel Sabar | Ariel Sabar,SUN STAFF

Tougher law enforcement and new programs to boost homeownership, revive neighborhoods and help victims of predatory loans have struck a blow against the epidemic of property flipping that swept through Baltimore in the late 1990s, a federal task force will report Monday.

But the report, the result of two years of work by the Baltimore City Flipping and Predatory Lending Task Force, recommends that housing agencies and lawmakers at every level of government do more to combat what it calls "the pervasive and venal practice of property flipping and mortgage fraud."

Flipping refers to the quick purchase and resale of houses at hugely inflated prices. The purchasers -- typically a web of predatory brokers, lenders and appraisers -- often sell the houses to unwitting first-time homebuyers in poor, minority neighborhoods. Unable to afford the overvalued mortgages, the homebuyers quickly lose the property in foreclosure, tearing the fabric of neighborhoods.

The task force points to several encouraging signs of progress in Baltimore, including a 33 percent decrease in flipping over the past 1 1/2 years and a 36 percent decline in the number of foreclosed homes taken over by the U.S. Department of Housing and Urban Development.

HUD's collection of homes is viewed as a breeding ground for flippers, who often buy them from the agency at bargain-basement prices and then do minimal repairs before reselling them at more than double the purchase price.

Still, the task force said the private and public sectors have further to go. In particular, it said:

HUD needs better controls to ensure that its houses are sold to local families, instead of to investors looking for a quick profit.

The Federal Housing Administration, which insures some home mortgages, needs new powers to prevent foreclosures and provide financial help to victims of mortgage fraud.

The state attorney general's office should use consumer protection laws to more aggressively pursue predatory lenders and brokers.

The City Council, Maryland General Assembly and U.S. Congress must overcome industry opposition and enact new measures to protect consumers against unethical lenders.

"We need to broadly raise the ethical standards within Baltimore's housing market through aggressive code enforcement, regulatory enforcement, consumer protection cases and progressive regulation," the report says. "We also need to maintain vigilant watchdog functions in the public and private sector, to better identify housing trends, new scams, new players in the field -- and intervene earlier."

The report comes about two years after a surge in property flipping and foreclosures in Baltimore led Sen. Barbara A. Mikulski to ask the Clinton administration to establish the task force.

Made up of 40 government officials, industry representatives and housing activists, the task force will formally present the report Monday morning to Mikulski and Sen. Paul S. Sarbanes at City Hall.

In a statement yesterday, Mikulski said she would press for new laws to protect "neighborhoods being destroyed by lending scams, scum and bums."

"I will hear the recommendations of the task force on Monday to make good on that promise," she said. Her office provided The Sun last night with an advance copy of the report.

The task force will continue to meet, but its report is a milestone after two years of meetings, research and program development, said Ken Strong, task force coordinator and research and policy director at the Community Law Center.

"We've had some significant accomplishments, but we still have challenges," he said. "My big hope for the ongoing work of the task force is that the Baltimore housing market will be a healthier and more honest one."

The report offers particular praise for federal law enforcement officials. Forty-seven defendants in mortgage fraud or property flipping cases have been convicted in federal court over the past three years, and 29 have been sentenced. The report also lauds city, state and federal efforts to raise public awareness through billboards and radio and television ads.

And it credits the newly created Baltimore Homeowners Emergency Loan Program, which has raised $3.4 million from government agencies and local banks for mortgage refinancing for victims of predatory lending.

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